Contractors’ Questions: Must I be furloughed for my training course to be tax-deductible?
Contractor’s Question: I read these helpful tax tips if doing a contractor training course during furlough, but do I need to be on furlough to get the tax-free element?
Are courses (in the same industry as me) still tax-deductible if I’m still working, rather than not working under the Coronavirus Job Retention Scheme?
I presume so, but do I need receipts submitted with accounts, and do I have to act before this current April financial year ends, or my company’s tax year-end?
Lastly, I note the author of the linked piece makes a point about the acquisition of new skills, saying courses to learn these would not be tax-deductible. But what if I’m a software company director and I want to undertake a general business course to help me run my company or expand it. What’s the tax position then?
Expert’s Answer: You do not need to be on furlough to claim work-related training courses as a contractor.
As with all expenses, the cost must be incurred ‘wholly and exclusively’ for the purposes of the business.
Retain a receipt and record
As a director and owner of the busines (rather than just an employee), you have greater levels of control. However, with this, there is a greater chance that expenditure may not be wholly and exclusively for business purposes. Therefore, it is wise to not only retain a receipt as proof of the expenditure, but also a record of what the course entailed and why it satisfies the ‘wholly and exclusively’ test. The business purpose must be the exclusive purpose.
For the cost of the course to be treated as an allowable expense, it should be adding to existing skills rather than be focused on the acquisition of new skills. The cost of a course that confers new skills will be regarded as capital in nature and therefore, is not allowable as an expense.
Allowable, and not allowable
If the expenses are allowable, it will be your company year-end date that is relevant, and you will obtain corporation tax relief in the year the expense is incurred.
Whether the business course is allowable will depend on the nature of the course. A course to improve your bookkeeping skills, for example, will likely be allowable since it’s wholly and exclusively related to the business and adds to skills you already possess.
However, if you are wishing to complete a business course for the purposes of expanding your business, it is likely the course will not be allowable, particularly if it results in a recognised qualification like an MBA. Good luck!
The expert was Joanne Harris, technical commercial manager at Parasol Group.